For decades, the United States and Britain’s vision of democracy and freedom defined the postwar world. What will happen in an age of Donald Trump and Nigel Farage?

By IAN BURUMA

One of the strangest episodes in Donald Trump’s very weird campaign was the appearance of an Englishman looking rather pleased with himself at a rally on Aug. 24 in Jackson, Miss. The Englishman was Nigel Farage, introduced by Trump as “the Man Behind Brexit.” Most people in the crowd probably didn’t have a clue who Farage — the leader of the United Kingdom Independence Party — actually was. Yet there he stood, grinning and hollering about “our independence day” and the “real people,” the “decent people,” the “ordinary people” who took on the banks, the liberal media and the political establishment. Trump pulled his face into a crocodile smile, clapped his hands and promised, “Brexit plus plus plus!”Brexit itself — the decision to withdraw Britain from the European Union, notwithstanding the almost universal opposition from British banking, business, political and intellectual elites — was not the main point here. In his rasping delivery, Trump roared about Farage’s great victory, “despite horrible name-calling, despite all obstacles.” Quite what name-calling he had in mind was fuzzy, but the message was clear. His own victory would be like that of the Brexiteers, only more so. He even called himself Mr. Brexit.Many friends and experts I spoke to in Britain resisted the comparison between Trumpism and Brexit. In London, the distinguished conservative historian Noel Malcolm told me that his heart sank when I compared the two. Brexit, he said, was all about sovereignty. British democracy, in his view, would be undermined if the British had to abide by laws passed by foreigners they didn’t vote for. (He was referring to the European Union.) The Brexit vote, he maintained, had little to do with globalization or immigration or working-class people feeling left behind by the elites. It was primarily a matter of democratic principle.Malcolm seemed to think that Brexit voters, including former industrial workers in Britain’s rust-belt cities, were moved by the same high-minded principles that had made him a convinced Brexiteer. I had my doubts. Resentment about Polish, Romanian and other European Union citizens coming to Britain to work harder for less money played an important part. As did the desire to poke the eye of an unpopular elite, held responsible for the economic stagnation in busted industrial cities. And the simple dislike of foreigners in Britain should never be underestimated.In the United States, too, I found resistance to the idea that Brexit was a harbinger of a Trump victory. I was assured over and over by liberal friends that Trump would never be president. American voters were too sensible to fall for his hateful demagogy. Trump, I was told, was a product of peculiarly American strains of populism that flare up periodically, like the anti-immigrant nativism in the 1920s or Huey P. Long in 1930s Louisiana, but would never reach as far as the White House. Traditional American populism of this kind, directed at the rich, bankers, immigrants or big business, could, in any case, not be usefully compared with English hostility to the European Union, because there was no supranational political union the United States belonged to.And yet Trump and Farage quickly recognized what they shared. In Scotland, where Trump happened to be reopening a golf resort the day after the Brexit vote, he pointed out the parallels. Brexit, Trump said to the Scots who voted overwhelmingly against it, was “a great thing”: The British had “taken back their country.” Phrases like “sovereignty,” “control” and “greatness” fired up the crowds in both Trump’s and Farage’s campaigns. You might think they meant something different by those words. Farage and his allies, many of them English nationalists, wanted to wrest national sovereignty from the European Union. But from whom or what does Trump want to take his country back? Trump has gestured at the International Monetary Fund and the World Trade Organization as noxious elements run by international elites to the detriment of the American working man. But I can’t imagine that these institutions fill most of his followers with rage.In fact, most international institutions, including the I.M.F. and NATO, were set up under American auspices, to promote the interests of the United States and its allies. European unification, and the resulting European Union, too, have not only been approved of but also vociferously encouraged by American presidents before Trump. But his America First sentiments — for that is what they are at this point, more than a policy — are hostile to these organizations. And so, by and large, are the likes of Nigel Farage.So Farage and Trump were speaking about the same thing. But they have more in common than distaste for international or supranational institutions. When Farage, in his speech in Jackson, fulminated against the banks, the liberal media and the political establishment, he was not talking about foreign bodies but about the aliens in our midst, as it were, our own elites who are, by implication, not “real, “ordinary” or “decent.” And not only Farage. The British prime minister, Theresa May, not a Brexiteer before the referendum, called members of international-minded elites “citizens of nowhere.” When three High Court judges in Britain ruled that Parliament, and not just the prime minister’s cabinet, should decide when to trigger the legal mechanism for Brexit, they were denounced in a major British tabloid newspaper as “enemies of the people.”Trump deliberately tapped into the same animus against citizens who are not “real people.” He made offensive remarks about Muslims, immigrants, refugees and Mexicans. But the deepest hostility was directed against those elitist traitors within America who supposedly coddle minorities and despise the “real people.” The last ad of the Trump campaign attacked what Joseph Stalin used to call “rootless cosmopolitans” in a particularly insidious manner. Incendiary references to a “global power structure” that was robbing honest working people of their wealth were illustrated by pictures of George Soros, Janet Yellen and Lloyd Blankfein. Perhaps not every Trump supporter realized that all three are Jewish. But those who did cannot have missed the implications.When Trump and Farage stood on that stage together in Mississippi, they spoke as though they were patriots reclaiming their great countries from foreign interests. No doubt they regard Britain and the United States as exceptional nations. But their success is dismaying precisely because it goes against a particular idea of Anglo-American exceptionalism. Not the traditional self-image of certain American and British jingoists who like to think of the United States as the City on the Hill or Britain as the sceptered isle splendidly aloof from the wicked Continent, but another kind of Anglo-American exception: the one shaped by World War II. The defeat of Germany and Japan resulted in a grand alliance, led by the United States, in the West and Asia. Pax Americana, along with a unified Europe, would keep the democratic world safe. If Trump and Farage get their way, much of that dream will be in tatters.

Credit Photo illustration by Maurizio Cattelan and Pierpaolo Ferrari In the years when most of Europe was overrun by the Nazis or fascist dictatorships, the Anglo-American allies were the last hope of freedom, democracy and internationalism. I grew up in the world they shaped. My native country, the Netherlands, was freed in 1945, six years before I was born, by British and North American troops (with the help of some very brave Poles). Those of us with no direct memories of this had still seen movies like “The Longest Day,” about the Normandy landings. John Wayne, Robert Mitchum and Kenneth More and his bulldog were our liberating heroes.This was, of course, a childish conceit. For one thing, it left out the Soviet Red Army, which liberated my father, who was forced to work in a factory in Berlin along with other young men who, under German occupation, refused to sign a loyalty oath to the Nazis. But the victorious Anglo-Saxon nations, especially the United States, largely shaped the postwar Western world we lived in. The words of the Atlantic Charter, drawn up by Churchill and Roosevelt in 1941, resonated deeply throughout a war-torn Europe: Trade barriers would be lowered, peoples would be free, social welfare would advance and global cooperation would ensue. Churchill called the charter “not a law, but a star.”Pax Americana, in which Britain played the role of special junior partner, whose specialness was perhaps more keenly felt in London than in Washington, was based on a liberal consensus. Not only NATO, set up to protect Western democracies, chiefly against the Soviet threat, but also the ideal of European unification were born from the ashes of 1945. Many Europeans, liberals as well as conservatives, believed that only a united Europe would stop them from tearing their continent apart again. Even Winston Churchill, whose heart was more invested in Commonwealth and Empire, was in favor of it.The Cold War made the exceptional role of the victorious allies even more vital. The West, its freedoms protected by the United States, needed a plausible counternarrative to Soviet ideology. This included a promise of greater social and economic equality. Of course, neither the United States, with its long history of racial prejudice and occasional fits of political hysteria, like McCarthyism, nor Britain, with its tenacious class system, ever quite lived up to the shining ideals they presented to the postwar world. Nonetheless, the image of exceptional Anglo-American liberty held up, not only in countries that had been occupied during the war but in the defeated nations, Germany (at least in the western half) and Japan, as well.America’s prestige was greatly bolstered not just by the soldiers who helped liberate Europe but also by the men and women back home who fought to make their society more equal and their democracy more inclusive. By struggling against the injustices in their own country, figures like the Rev. Dr. Martin Luther King Jr. or the Freedom Riders or indeed President Obama kept the hope of American exceptionalism alive. As did the youth culture of the 1960s. When Vaclav Havel, the Czech dissident playwright and later president, hailed Frank Zappa, Lou Reed and the Rolling Stones as his political heroes, he was not being frivolous. Under communist oppression, the pop music of America and Britain represented freedom. Europeans born not long after World War II often professed to hate the United States, or at least its politics and wars, but the expressions of their hostility were almost entirely borrowed from America itself. Bob Dylan received this year’s Nobel Prize for literature, not least because the Swedish jury of baby boomers grew up with his words of protest.No doubt Trump and Farage regard Britain and the United States as exceptional nations. But their success is dismaying precisely because it goes against a particular idea of Anglo-American exceptionalism.The ideal of exceptional Anglo-Saxon liberties obviously goes back much further than the aftermath of Hitler’s defeat, let alone Bob Dylan and the Stones. Alexis de Tocqueville’s admiring account of American democracy in the 1830s is well known. Much less famous are his writings on Britain in the same period. Born soon after the French Revolution, Tocqueville was haunted by the question of why Britain, with its mighty aristocracy, was spared such an upheaval. Why did the British people not rebel? His answer was that the social system in Britain was just open enough to allow a person to hope that with hard work, ingenuity and luck, he could rise in society. The British version of the American dream: “The Great Gatsby” may be the great American novel, but Gatsby could have existed in Britain too.In practice, there were probably not all that many rags-to-riches stories in 19th-century Britain. But the fact that Benjamin Disraeli, the son of Sephardic Jews, could become prime minister, and an earl, no less, provided the basis for many generations in Europe to believe in Britain as an exceptional country. Jews from Russia or Lithuania, or from Germany, like my own great-grandparents, flocked to Britain as immigrants in the hope that they, too, could become English gentlemen.Anglophilia, like the American dream, may have been based on myths, but myths can be potent and long-lasting. The notion that sufficient effort and talent can beat the odds has been especially important in Britain and the United States. Anglo-American capitalism can be harsh in many ways, but because free markets are receptive to new talent and cheap labor, they have spawned the kind of societies, pragmatic and relatively open, where immigrants can thrive, the very kind that rulers of more closed, communitarian, autocratic societies tend to despise.Wilhelm II, kaiser of Germany until 1918, when his country was defeated in the First World War, which he had done his best to unleash, was such a figure. Half English himself, he called England a nation of shopkeepers and described it as “Juda-England,” a country corrupted by sinister alien elites, where money counted more than the virtues of blood and soil. In later decades, this kind of anti-Semitic rhetoric was more often aimed at the United States. The Nazis were convinced that Jewish capitalists ruled America, not just in Hollywood but in Washington and, naturally, New York. This notion is still commonly held, though less in Europe than in the Middle East and some parts of Asia. But talk about “citizens of nowhere,” sinister cosmopolitan elites and conspiratorial bankers fits precisely in the same tradition. A terrifying irony of contemporary Anglo-American populism is the common use of phrases that were traditionally used by enemies of the English-speaking countries.Yet even those who don’t go along with the kaiser’s loathsome words recognize that liberal economics, as practiced since the middle of the 19th century in Britain and the United States, has a darker side. It does not allow for much redistribution of wealth or protection of the most vulnerable citizens. There have been exceptions: Roosevelt’s New Deal, for instance, or Britain’s postwar Labor government under Clement Attlee, which created free national health care, built better public housing, improved education and guaranteed other blessings of the welfare state. British working-class men who risked their lives for their country during the war expected no less. On the whole, however, Britain and the United States have, compared with many Western countries, generally set greater store on individual economic freedom than on the ideal of egalitarianism. And nothing creates such swift and radical social change as unfettered free enterprise.

Credit Photo illustration by Maurizio Cattelan and Pierpaolo Ferrari. Map: Rand McNally. The Reagan-Thatcher revolution in the 1980s — deregulating financial services, closing down coal mines and manufacturing plants and hacking away at the benefits of the New Deal and the British welfare state — was regarded by many conservatives, on both sides of the Atlantic, as a triumph for Anglo-American exceptionalism, a great coup for freedom. Europeans outside Britain were more skeptical. They tended to see Thatcherism and Reaganomics as ruthless forms of economic liberalism, making some people vastly richer but leaving many more out in the cold. Nonetheless, in order to compete, many governments began to emulate the same economic system.That this happened at the end of the Cold War was no coincidence. The collapse of Soviet communism was celebrated, rightly, as the final liberation of Europe. Countries, left behind on the wrong side of the Iron Curtain after World War II, were free at last. The first President Bush spoke about the “new world order,” led by the only superpower left standing. The Reagan-Thatcher revolution appeared to have triumphed.But the end of communism in the West also had other, less desirable consequences. The horrors of the Soviet empire tainted other forms of leftism, including social democratic ideals, which in fact had been anti-communist. Even as the “end of history” was declared and the Anglo-American liberal democratic model was expected to be unrivaled forever, many began to believe that all forms of collectivist idealism led straight to the gulag. Thatcher once declared that there was no such thing as society, just individuals and families. People had to be forced to take care of themselves.Radical economic liberalism did more to destroy traditional communities than any social-democratic governments ever did. Thatcher’s most implacable enemies were the miners and industrial workers. The neoliberal rhetoric was all about prosperity “trickling down” from above. But it never quite worked out that way. Those workers and their children, now languishing in impoverished rust-belt cities, received another blow in the banking crisis of 2008. Major postwar institutions, like the I.M.F., which the United States set up in 1945 to secure a more stable world, no longer functioned properly. The I.M.F. did not even see the crisis coming. Large numbers of people, who never recovered from the crash, decided to rebel and voted for Brexit — and for Trump.Neither Brexit nor Trump are likely to bring great benefits to these voters. But at least for a while, they can dream of taking their countries back to an imaginary, purer, more wholesome past. This reaction is not only sweeping across the United States and Britain. The same thing is happening in other countries, including some with long liberal democratic traditions, like the Netherlands. Twenty years ago, Amsterdam was seen as the capital of everything wild and progressive, the kind of place where cops openly smoke pot (another myth, but a telling one). The Dutch thought of themselves as the world champions of racial and religious tolerance. Of all European countries, the Netherlands was the most firmly embedded in the Anglosphere. Now the most popular political party, according to the latest polls, is led practically as a one-man operation by Geert Wilders, an anti-Muslim, anti-immigrant, anti-European Union firebrand who hailed Trump’s victory as the coming of a “patriotic spring.”‘Taking back our country’ means a retreat from the world that Anglo-Americans envisioned after 1945. English nationalists have opted for a modern version of Splendid Isolation. Trump wants to put America First. In France, Marine Le Pen, who shares Wilders’s enthusiasm for Trump, might be the next president. Poland and Hungary are already ruled by populist autocrats who reject the kind of liberalism that Eastern European dissidents once struggled so hard to achieve. Norbert Hofer, a man of the far right, could become the next president of Austria.Does this mean that Britain and the United States are no longer exceptional? Perhaps. But I think it is also true to say that the very idea of Anglo-American exceptionalism has made populism in those countries more potent. The self-flattering notion that the Western victors in World War II are special, braver and freer than any other people, that the United States is the greatest nation in the history of man, that Great Britain — the country that stood alone against Hitler — is superior to any European let alone non-European country has not only led to some ill-conceived wars but also helped to paper over the inequalities built into Anglo-American capitalism. The notion of natural superiority, of the sheer luck of being born an American or a Briton, gave a sense of entitlement to people who, in terms of education or prosperity, were stuck in the lower ranks of society.This worked quite well until the last decades of the last century. Not only were the fortunes of working- or lower-middle-class people in Britain beginning to dwindle compared with those of the rich, who were steadily getting richer, but it gradually became clear even to the most insular Britons that they were doing much worse than the Germans, the Scandinavians and the Dutch, worse even than the French, Britain’s oldest rivals. One way of venting their rage was to fight in soccer stadiums, taunting German fans by mimicking British bombers and bellowing slogans about winning the war.The so-called football hooligans remained an embarrassing minority, but there were other ways to express the same feelings. The European Union, for which most British people had never felt a great love, actually made many parts of Britain more prosperous. The blight of the old industrial cities and mining towns was not a result of European Union policies. But it was easy for “Euro-skeptics” to deflect popular attention from domestic problems by blaming foreigners who were supposedly running the show in Brussels. Europhobes liked to claim that “this was not why we fought the war.” The specter of not just Hitler but also Napoleon was sometimes evoked. Spitfires and talk of Britain’s finest hour made a rhetorical comeback in the UKIP campaign to leave Europe. Some pro-Brexit politicians even praised the greatness of the British Empire. “Taking back control” by leaving the European Union is not going to make most people in Britain more prosperous. The contrary is more likely to be true. But it takes the sting out of relative failure. It feeds the desire to feel exceptional, entitled, in short, to be great again.Something similar has happened in the United States. Not only were even the least privileged Americans told that they lived in God’s own country, but white Americans, however impoverished and undereducated, had the comforting sense that there was always a group beneath them, who did not share their entitlement, or claim to greatness, a class of people with a darker skin. With a Harvard-educated black president, this fiction became increasingly difficult to sustain.

Credit Photo illustration by Maurizio Cattelan and Pierpaolo Ferrari. Map: Rand McNally. Trump and the leaders of Brexit had a fine instinct for these popular feelings. In a way, Trump is a Gatsby gone sour. He played on the wounded pride of large communities and inflamed the passions of people who fear the changes that make them feel abandoned. In the United States, this brought out old strains of nativism. In Britain, English nationalism is the main force behind Brexit. But in both cases, “taking back our country” means a retreat from the world that the Anglo-Americans envisaged after 1945. English nationalists have opted for a modern version of Splendid Isolation (paradoxically, a term coined to describe British foreign policy under Benjamin Disraeli). Trump wants to put America First.Brexit Britain and Trump’s America are linked in their desire to pull down the pillars of Pax Americana and European unification. In a perverse way, this may herald a revival of a “special relationship” between Britain and the United States, a case of history repeating itself not exactly as farce but as tragi-farce. Trump told Theresa May that he would like to have the same relationship with her that Ronald Reagan had with Margaret Thatcher. But the first British politician to arrive at Trump Tower to congratulate the president-elect was not the prime minister or even the foreign secretary, Boris Johnson, but Nigel Farage.Trump and Farage, beaming like schoolboys in front of Trump’s gilded elevator, gloated over their victories by repeating the same word that once made their respective countries exceptional: “freedom.” In the privacy of Trump’s home, Farage suggested that the new president should move Winston Churchill’s bust back into the Oval Office. Trump thought this a splendid idea.A month before Trump’s election and three months after the Brexit vote, I visited the great military historian Sir Michael Howard at his home in rural England. As a young man, Howard fought the Germans as an officer in the British Army. He landed in Italy in 1943 and took part in the decisive battle of Salerno, for which he was awarded the Military Cross. John Wayne and Kenneth More were a fantasy. Sir Michael was the real thing. He is 95 years old.After lunch at a local pub, just a few miles from where my grandparents used to live, we talked about Brexit, the war, American politics, Europe and our families. The setting could not have been more English, with the pale autumn sun setting over the rolling hills of Berkshire. Like my great-grandparents, Sir Michael’s maternal grandparents were German Jews who moved to England, where they did very well. Like mine, his family of immigrants became utterly British. In addition to being Regius professor of history at Oxford University, Howard taught at Yale. He knows America well and has no illusions about the “special relationship,” which he believes was invented by Churchill and was always much overblown.Sitting in his drawing room, with books piled up around us, many of them about World War II, I wanted to hear his thoughts on Brexit. He replied in a tone of resigned melancholy more than outrage. Brexit, he said, “is accelerating the disintegration of the Western world.” Contemplating that world, so carefully constructed after the war he fought in, he said: “Perhaps it was just a bubble in an ocean.” I asked him about the special Anglo-American relationship. “Ah, ‘the special relationship,’ ” he said. “It was a necessary myth, a bit like Christianity. But now where do we go?”Where indeed? The last hope of the West might be Germany, the country that Michael Howard fought against and that I hated as a child. Angela Merkel’s message to Trump on the day after his victory was a perfect expression of Western values that are still worth defending. She would welcome a close cooperation with the United States, she said, but only on the basis of “democracy, freedom and respect for the law and the dignity of man, independent of origin, skin color, religion, gender, sexual orientation or political views.” Merkel spoke as the true heiress of the Atlantic Charter.Germany, too, once thought it was the exceptional nation. This ended in a worldwide catastrophe. The Germans learned their lesson. They no longer wanted to be exceptional in any way, which is why they were so keen to be embedded in a unified Europe. The last thing Germans wanted was to lead other countries, especially in any military sense. This is the way Germany’s neighbors wished it as well. Pax Americana seemed vastly preferable to a revival of German exceptionalism. I still think so. But looking once more at that photograph of the Donald and Farage, baring their teeth in glee, thumbs held high, with the gold from the elevator door glinting in their hair, I wonder whether Germany might not be compelled to question a lesson it learned a little too well.Ian Buruma is a professor at Bard College. His most recent book, “Their Promised Land,” will come out in paperback in January.

Cutting the corporate tax rate will boost the U.S. economy. But Trump’s 15% target is too low.

By Gene Epstein

If President-elect Donald J. Trump and the new Congress are serious about firing up the U.S. economy, they will move swiftly to cut the corporate tax rate, now the highest in the world.

That one step would have far-reaching effects. It would make American businesses more competitive in the global arena. It would reduce the massive amounts of time and energy now wasted on tax-avoidance maneuvers. And it would bring home to these shores trillions of dollars of profits earned by U.S. corporations overseas and now housed in kinder tax jurisdictions.

Trump seems to appreciate all of that. On the campaign trail, he proposed slashing the rate that businesses pay on income from 35% to 15%. That might be too much—it could significantly reduce the government’s tax haul and add to the nation’s already unacceptable debt burden. Barron’s recommends a cut to 22%, which would be revenue-neutral, allowing businesses to produce just enough additional taxable income to offset the effect of the lower rate. And getting a 22% cut through Congress would be easier than 15%.

THE IDEA OF A revenue-neutral cut in the corporate income tax harks back to 1978, when economist Arthur Laffer was first cited as arguing that some tax cuts could generate enough added economic growth that the government would not lose revenue over the long term. Laffer also noted that most tax hikes generate less revenue than a conventional “static” analysis indicates, and most tax cuts lose less.

Laffer’s “dynamic” analysis covers all of the behavioral changes likely to result from a cut. To begin with, if the tax collector claims a lower share of income, there is an incentive to produce more income. Second, a lower rate means there’s less incentive to spend time and effort avoiding the tax.

That second factor—less tax avoidance—applies with special force to a rollback in the corporate income tax.

Click on chart for larger PDF version.

While granting tax breaks to big corporations goes against the grain of American populism, so should ceding the economic advantage of lower corporate rates to every other major industrialized country. And given the huge sums involved, it’s not hard to see why American companies operating abroad actively shop for low-tax jurisdictions.

Take corporate “inversions,” which many lawmakers deride as un-American. In an inversion, a U.S. multinational company is acquired by a company domiciled in a low-tax country, such as Ireland or Canada, where top rates are 12.5% and 26.7%, respectively. Profits earned in the U.S. continue to be taxed at the domestic rate, while those made elsewhere are subject to lower rates. Democrats have cynically sought to outlaw inversions, rather than lower domestic tax rates, which would solve the problem by eliminating the reason companies seek out other residences. In effect, it’s a form of protectionism, and it doesn’t work. Another tax-avoidance strategy is to locate subsidiaries in low-tax jurisdictions and to keep accumulated profits offshore; hence the roughly $2 trillion held abroad by U.S. corporations that are loath to repatriate this money because it would be subject to high U.S. taxes. Here again, a lower rate would bring revenue back to the U.S., rather than stranding it abroad.Then there is the tricky business of transfer pricing. For example, a U.S. company purchases materials from a subsidiary in Ireland, where the tax on corporate income is much lower. Within limits, the price of the purchased materials will be exaggerated, thus reducing the profits of the U.S.-based company and boosting the earnings of that firm’s subsidiary in the low-tax jurisdiction. THROUGH TRANSFER PRICING, then, prices on intra-corporate sales and purchases are set too high or too low, depending on the direction of the transaction. While Washington has tried to deal with cheating in this area—a wasteful exercise in itself, leading to costly litigation—it is obviously impossible to determine “correct” prices.A tax reduction would reduce all of these incentives, generating more revenue for the U.S. Treasury. And by encouraging greater investment in the domestic economy, it would generate more revenue by resulting in more profit. The Washington, D.C.–based Tax Foundation has argued that Trump’s tax-cut plan would result in a decline in government revenue because it “will encourage more investment and result in businesses deducting more capital investments, which would reduce corporate taxable income.” But over a 10-year time horizon—which the Tax Foundation itself studies—more capital investment will yield more profit and hence more taxable income. .

And in the shorter run, there is the tax revenue generated by secondary effects. More revenue would come from shareholders, as they benefit from greater dividends and capital gains. And more would come from corporate employees, as they benefit from higher wages and salaries generated by higher spending on capital investment. Over time, and taken all together, the revenue effects from a tax cut could even be positive. Meanwhile, the boost to economic activity would be palpable. Most of America’s trading partners have already discovered the dynamic supply-side effects of this tax cut. Over the past 35 years, other countries have trimmed their top corporate rates by a far greater proportion than the U.S. Virtually every comparison between the burden of corporate taxes in the U.S., including state and local levies, and the rest of the world has shown that America’s burden is higher than most.For example, as the chart shows, the top rate in the U.S., which combines the federal rate of 35% with four added percentage points for states and localities, comes to 39%. That’s higher than the combined rates for Germany (30.2%) and Japan (30%), and much higher than the United Kingdom’s (20%) and Denmark’s (22%).Critics of corporate tax reductions point to the many loopholes that creative accounting already exploits. But according to one study, the effective corporate tax rate, which factors in these loopholes, still leaves the U.S. as No. 2 in the world in terms of its corporate tax burden, and noticeably higher than Canada and even “socialist” Sweden.Harvard University economist Gregory Mankiw argues that corporations themselves are not the beneficiaries of tax cuts, contending that they are not really taxpayers, but rather tax collectors. It’s therefore an open question as to which of the corporate stakeholders is bearing the main burden of the tax. Many would say that it’s the company’s stockholders, with bondholders also contributing; others might say that the company’s customers pay up, as well. Cato Institute senior fellows Chris Edwards and Daniel J. Mitchell take that idea a step further in their 2008 book, Global Tax Revolution, where they make the plausible argument that, in today’s world, the taxpayers are mainly the workers. “The burden of corporate taxes in the globalized economy,” they observe, “mainly falls on average workers in the form of lower wages. If U.S. and foreign semiconductor and pharmaceutical companies are not building factories in America because of higher taxes, it is American workers who lose.”BUT IF YOU CAN RUN, you can’t hide. Companies have to pay taxes to some jurisdiction. If corporate rates across countries have been lowered over the years, then those who doubt the Laffer effect will expect that revenue from this tax has declined, especially given the tendency for companies to flee to lower-tax jurisdictions. Barron’s tested this idea by updating a statistical run originated by Cato fellows Edwards and Mitchell. The results not only confirmed the Laffer effect but also, if anything, showed that a decline in the corporate tax rate seems to bring a rise in revenue, rather than a fall. In other words, instead of being revenue-neutral, the proposed cut might even be revenue-positive.For 19 countries in the Organization for Economic Cooperation and Development—including the U.S., the U.K., Ireland, France, Japan, Germany, Switzerland, Denmark, Sweden, New Zealand, and Australia—Barron’s used that organization’s numbers to calculate a simple average, over time, of the top rate on corporate income, as tracked by the first line in the nearby chart.In 1981, the earliest year for which data are available, the average top rate was 47.6%. By 2014, the most recent year for which data are available, the average had plunged to 27.4%. This decline of more than 20 percentage points came with only partial participation by the U.S., whose top rate, including state and local, fell by only 10.6 points over this period, to 39.1% in 2014 from 49.7% in 1981.The decline in the average over each of these intervals was widespread. Fifteen out of 19 nations had lower top rates in 1995 than in 1981, and 18 of the 19 had lower top rates in 2014 than in 1995. This collective race to the bottom conceivably could have brought a decline in revenue, but it seems to have brought just the opposite. The OECD provides figures for each country on revenue from the corporate tax, as a percentage of each country’s gross domestic product. From these figures, Barron’s calculated a simple average for the 19 countries for each snapshot year. The figures are sensitive to the strength in the global economy; slow growth tends to lower revenue as a share of GDP, while faster growth leads to higher revenue. But the pattern is unmistakable. In 1981 and 1985, when the average tax rates were highest (47.6% and 47.8%, respectively), the tax takes as a share of GDP were at their lowest (2.1% and 2.3%). In 2000 and 2005, the tax takes were at their highest (3.5% and 3.3%, respectively), while the rates were among the lowest (35.4% and 31.1%). Perhaps most decisively, the average tax rate in 2014 was at its lowest, at 27.4%. The tax take in 2014, at 2.7%, reflects slow growth. But in 1995, the take was also at 2.5%, even though the average tax rate was more than 10 percentage points higher, at 37.5%.“Despite complaints that corporate tax cheating is rampant and getting worse, these trends show the reverse. Tax avoidance seems to have fallen, which is one of the beneficial effects of rate cuts that all sides of this issue can support,” says Cato’s Edwards.WHAT SORT OF REDUCTION works best? Out of concern for rising debt and deficits, and for the need for the White House and Capitol Hill to focus on the much harder task of cutting spending, Barron’s proposes a conservative approach.In their Sept. 29 white paper, “Scoring the Trump Economic Plan,” Trump economic advisors Peter Navarro and Wilbur Ross propose reducing the top federal rate on corporate income to 15% from 35%. However, if the tax is meant to pay for itself, that 15% target may be too low. A 2007 study by American Enterprise Institute scholars Alex Brill and Kevin Hassett (“Revenue-Maximizing Corporate Income Taxes”) found that there is indeed a Laffer effect with respect to lowering corporate income taxes. They estimated “about 26%” as the “revenue-maximizing point,” where revenue would actually run positive. Barron’s favors this 26% target, which translates into 22% on the federal level, factoring in the extra four percentage points for corporate income taxes levied by states and localities. In order to bring the overall corporate tax rate to 26%, then, this means lowering the top federal rate to 22% from its current 35%, assuming the extra four percentage points remain unchanged. Advisors Navarro and Ross address another issue: They propose a one-time “amnesty rate” of 10% to induce repatriation of the $2 trillion in profits that U.S. corporations are keeping offshore. Since these companies have already paid taxes in the host countries where the money was earned, a case can be made for a zero rate. However, given concerns about possible revenue losses over the short term from a cut in the top rate, Barron’s favors the compromise of a 10% charge.Last week, The Wall Street Journal reported that U.K. Prime Minister Theresa May endorsed a move to lower her nation’s top corporate rate from 20% to 17% by 2020. Other countries might respond with further cuts in their rates, which could give Trump support to get to 15%. Meanwhile, we favor 22%, because it encourages companies to invest more, while not reducing tax revenue.

The Road to Recovery: Global Epocalypse Inevitable According to Trump's Chief and World's Largest Failing Bank

By: David Haggith

The financial end of the world in economic apocalypse is here. A funny thing happened on the road to recovery: Trump's chief strategist admitted his view of the Trumpian future looks like the Great Depression. Even the world's largest bank just said global financial default is the preferable way out and most likely way out of the Great Recession that began in 2007/2008. That's the new optimism. You don't get better than all of that for an exhilarating view of the imminent future. As Maya MacGuineas, the leader of the Committee for a Responsible Federal Budget, also assessed the situation,

"President-elect Trump is going to be inheriting the worst fiscal situation of any president... other than President Truman ... as judged by the debt relative to the economy." ~ The Washington Post

Trump's solution for that problem requires that we enormously increase that debt and hope to power through. That puts him in a no-win scenario unless he can jack the economy up faster than he jacks up the debt; but we are already seeing the likelihood of that fall apart before the plan begins, as I'll explain. That Trump's plan will increase the debt is not just something his critics are claiming but is also something hisÂ own chief strategist, Stephen Bannon, admits to from the outset of this journey into oblivion:

"With negative interest rates throughout the world, it's the greatest opportunity to rebuild everything," Bannon said. "Shipyards, ironworks, get them all jacked up. We're just going to throw it up against the wall and see if it sticks. It will be as exciting as the 1930s, greater than the Reagan revolution." ~ The Washington Post

"Throw it up against the wall and see if it sticks" sounds like a description of a last-ditch effort if I ever heard one. It's certainly not the usual new administration optimism. "As exciting as the 1930s?" Yikes. The plan is for something as exciting as the greatest economic collapse the modern world has known ... until now. And clearly the plan here is only made possible by interest so low that it is in some places negative. So, pack the bags on the jalopy because 2017 is going to be a heck of a ride.

I don't fault Bannon or Trump for this because I have said all along that we will never avoid the economic collapse that our mountains of debt and our greedy banks have already assured. We can only push it off but make it greater by doing so. I may have jumped the gun a little with my prediction of the Epocalypse at the start of 2016, but a year later we have some of the most unlikely places admitting we are going there, so I didn't jump it by much. (Wait until you read what Deutsche Bank has to say.)

While I'm not surprised at all by where we are headed, I am surprised at Bannon's stark admission that Trump's plan will take us on a journey as "exciting" as the Great Depression of the 1930's - not exactly everyone's favorite period in history to relate to if one is trying to build belief in a recovery plan.

He's right, of course, but I'm surprised to find someone who is trying to stir excitement for his plan comparing it to the worst time the oldest people alive can remember - a time they hoped they would never revisit. I suppose I shouldn't be because that is where we are, and Bannon's nature is to say things as they are. You just don't usually hear such stark expression from the president's chief strategists. Again, such is the nature of our time. (And I'd rather hear things as they are than pretend otherwise.)

While I'm sure Bannon wasn't expressing dumbfounded joy about experiencing another decade like the Great Depression, he was saying that Trump's debt-heavy plan is much like Roosevelt's WPA. That's where we are - in an economy that has stalled to the point that it will take a WPA-sized plan to move it any further ahead. That thought, too, is not exactly hopeful because we also had a global war to help gas the engines of the economy out of the 30s, and that has been looking more likely throughout 2016, too.

I agreed at the start of the Obama administration that we should take out debt to accelerate the economy and position the nation for a more vibrant future because then we would, at least, be handing the next generation some genuinely valuable merchandise in exchange for all the debt we created ... so long as we focused on projects that really needed to be done anyway. While I'm not so sure about the proverbial crumbling bridges that have provided the argument for taking on more debt for a decade or more, there are plenty of needed projects in the form of antiquated sewer systems that are far from capable of handling today's capacity, major city water systems that still use wooden pipes, etc.I suggested then, "Do it now, while the price tag is lower than it may be in the future and while the cost of finance is dropping." But that was then, and it's too late now for reasons I'll lay out here. It's an opportunity that was lost due to a non-visionary, do-nothing-in-the-face-of-catastrophe, obstructionist congress.

I'm for using debt to get some things going when the prices are down and jobs are in short supply and then paying it back as things start picking up. I'm for using debt responsibly like a tool, not like a replacement for the oxygen we breath ... but when has the US done that in the last half a century? We have been profligate, lazy debt abusers, paying for nothing as we go, living off the generosity of a future that has no say in the matter.

My thoughts at the start of the Great Recession: there are always projects that need to be done, why not do them when labor is cheaper and easier to find and when the cost of credit is extremely low. That is just common-sense wisdom as a way of creating jobs and getting things done that are government's responsibility and that have been put off for too long anyway.

However, I have been saying for the last four years that we squandered that opportunity for the past seven years as the Republicans obstructed such attempts and as the Obama administration, frankly, did very little to push such ideas through. Obama had no vision and put more effort into changing bathroom laws. Trump does have vision, but Obama already spent the debt capacity the US had for doing such bold ideas. Now that the Obama administration has doubled the national debt to $20 trillion, the debt relative to the total size of the economy (when measured in GDP), asÂ MacGuineas says, is the highest its been since the end of WWII. Hitting that point is a game-changer in terms of what you can now do with debt.We're at 100% of the total economy owed in debt! From what we've seen in other nations that are bordering on collapse, going above that mark gets seriously precarious, while even hitting that level suffocates the economy. We're at a debt load that is only survived at all because interest rates are the lowest they have been in the history of the world. (Literally. No nation has ever given money away to the degree that nations around the world have been doing over the last few years.)The current budget deficit is already running well over half a trillion dollars a year, and that's while making interest payments that are almost nil. What will the deficit be if rates rise to historically normal levels, even if we don't finance Trump's plan? No one knows exactly what the maximum debt ceiling for any nation is, but I believe we are now seeing a clear sign that we have hit that level, and "throw it up against the wall and see if it sticks" doesn't sound like a well-thought-out plan that justifies another trillion in debt over time. (Many say it will really come to five trillion.)

Summing up the Trumped-up tax benefitsOn the surface of the Trump plan, what's not to like if your in business or are a stock investor?

massively increased infrastructure spending ... without paying for it

increased military spending ... without paying for it

repatriation of corporate profits at low-to-no taxes

corporate tax cuts

personal income-tax cuts

capital gains tax cuts

How can you not throw the world's biggest party when you're doing all of that? So, let me start by saying I think it will stimulate the economy ... and the stock market, too. It has already begun to do so. It is such a massive shift into finally applying fiscal policy toward growth, instead of just relying on monetary policy, that it forcibly revises the timing of my predicted Epocalypse ... but probably not by much.It adds up to a form of government quantitative easing as massive as everything the Federal Reserve has done and more - entirely new ammo just as all the central banks are, as David Stockman keeps saying, "out of dry powder." The government will issue enough bonds to pay for all that spending and all those tax cuts (which they hope will make it possible for you to amp up spending, too), and none of us have to ever pay for it!That's why Reaganomics stimulated the economy so much. We bought everything and left it to others to pay for it. (We've just continued to move that along and greatly increase it under George II and Obama.) Since Trump's plan will be the biggest pay-for-it-all-later flood of stimulus in the history of the nation, how can it not boost the economy? (Hint. I'll tell you in a moment.)

The Federal Reserve provided $2.2 trillion of direct quantitative wheezing. Trump is promising double that in new national debt alone. On top of that, the amount of new cash back into the country as a result of repatriation is estimated to be about another trillion. And then there is the money they hope you will spend from your tax savings.

But where will all the money go?

Trump knows where the money the government raises through bond issues will be spent (because he will control the spending), but he only thinks he knows what will happen with all the repatriated corporate cash and the corporate tax savings. Will most of that money go to expand factories and create jobs as Team Trump says? ... As Ronald Reagan said? While Goldman Sachs is not trustworthy in the slightest, I think they are right on the money here, and I'll explain why:

"A significant portion of returning funds will be directed to [stock] buybacks based on the pattern of the tax holiday in 2004," the team, led by Chief U.S. Equity Strategist David Kostin, write. They estimate that $150 billion (or 20 percent of total buybacks) will be driven by repatriated overseas cash. They predict buybacks 30 percent higher than last year, compared to just 5 percent higher without the repatriation impact." ~ Bloomberg

This is a no-brainer in my view because I choose to learn from history. In the absence of strong markets, corporations for the past couple of years have focused primarily on using their cash to buy back stocks and have used their available cheap credit to do even more buybacks. Corporations have found that their boards and CEOs can make a lot more money a lot faster with less risk by playing the market with company stocks and company cash than actually building anything.These buybacks don't make any money for the corporations, so it is not "business;" but they generate a ton of money for the wealthy owners as they milk their corporations dry. Why would they change that plan if more free money is on its way? Why would they spend it, as Trump and his tax maestro's think they will, on capital investments to build products for which demand has been slowing? (If repatriation and corporate tax cuts were conditional based on companies not doing any buybacks, then maybe it would accomplish something more than jacking the stock market up another time; but I've heard no rumor of such conditions being built into the new tax code.)

Some of the money will also be spent on increased dividends to shareholders to keep stock prices rising with enticements because that is also what corporations have been doing in recent history. Those dividends will, in turn, get reinvested in more stock speculation.And then there will be acquisitions of new companies to make bigger conglomerates, which helps eliminate jobs. All of which does nothing for the general economy; but it's huge for the stock market. So, there are many reasons to think the stock market could soar again to even greater bubblicious heights.

Infrastructure projects will kick some corporations into capital investment by creating demand, instead of just supply; but, as Goldman indicates, I suspect the recently adopted habits of going for the low-hanging fruit will not end as the most favored way to put the government plans directly into the pockets of the rich.

So, there are LOTS of reasons to think stocks will go up IF the plan is enacted, and that's why you see people quickly repositioning for that now by moving to stocks like Caterpillar, which are cheap because the company has been doing so poorly, but which should do well if the government starts building lots of infrastructure that requires lots of heavy equipment.

Of course, Trump will have to get all of this through congress. Dem's should love it, they wanted to boost infrastructure spending when obstructionist Republicans resisted. Now that it's the Republican plan, most Republicans will approve it, except the diehard deficit hawks; so the Repubs will need a few Dems to join them. Will they join, though? Or will Dems return the Republican's approach by dishing out their own obstructionism, and will they get the few remaining fiscally conservative Repubs to give them enough strength to obstruct the plan?

That part is anyone's guess, but my guess would be that most of the plan makes it through because the nation expects action.

Who benefits when Trump's cards are played?Corporations are not that excited about the large nominal tax cut because, for most of them, their effective rate is already that low or even lower because of the endless loopholes their lobbyists have worked into the system - dodges for which only those who can afford a battalion of tax accountants and a fleet of attorneys need apply.If Plan Trump does work, the people who benefit most will be the same people who have prospered off the entire Great Recession so far. As I say at the top of this site, "It's been a great recession ... for a few." (This is what I warned of about Trump's economic plan before the election.)That's why the stocks that are rising the fastest from the mere thought of the tax cuts are the Wall Street banks that created the Great Recession! If they had known such a populist shift would drive up their stocks, they would have voted for Trump themselves. (Maybe they did and did protest too much only because they knew the populace would vote for anything the banksters pretended to hate, as I also said before the election. After all, remember how Goldman Sachs intentionally counseled its clients to do the opposite of what it was doing with its own money when they created the Great Recession?)The banksters certainly have nothing to complain about at the moment as rising interest rates lift them out of bank hell, and they are no more likely to be put in jail than their close friend, Crooked Hillary. So, all of this is a bank holiday so far.While the spending increases will create jobs and may benefit the average person with higher-pay, there is a caveat so big that is already undercutting the longterm success of the infrastructure-spending stimulus program and could even stop it from happening by taking us straight to default as the first step of true recovery.

The self-defeating effects of Trump's spending spreeThere is some certainty in all of this: Massively cutting taxes while hugely increasing spending assures everyone that the government will take on a lot more debt. That means issuing a lot more bonds and other treasury debt instruments. That means interest will rise. In anticipation of that, interest on bonds has already risen at the fastest rate in history (1.5 times faster than the previous record in 1994). And that rapid interest increase is happening at the mere thought of Trump's program.

The rise in bond interest has also already translated into rising interest on mortgages, which has triggered an increase in mortgage applications as people see the writing on the wall and rush to finish their home purchases before the rates climb higher still. In other words, people are waking up to the fact that the days of low interest are fading fast.A few more certain conclusions follow from all of that: Rising interest is certain to make Trump's infrastructure programs harder to accomplish without breaking the government. That undercuts the whole idea laid out by Bannon that the time to buy new infrastructure is now when interest rates are low. The plan has already started a self-defeating loop where the cost of credit is rising rapidly long before any specific projects are even talked about. That is a huge danger sign.In other words, Trump's plan appears to be defeating itself long before it even goes to congress. As I've been saying for years, such is the plight a nation eventually comes to when it reaches peak debt. You pile the debt forward to the point where you cannot push it any further because funding new expansion with new debt drives up your interest costs beyond what you can keep up with.The rapid rise of interest, even while the Fed has its target set to the bottom, is a gauge that indicates we are there. All we can do now is spin our tires, trying to push the snow drift any further, or kill our engine.Bond funds are facing a liquidity crisis. If you simply buy government bonds directly and hold them for their full term, your money is stuck but pretty safe ... at least, until the government defaults, by which point all bets of any kind are off anyway. However, bond funds, which most retirement funds invest in, are another story. Since fund managers buy and sell bonds, the value of their existing bonds drops when the government and others start paying higher interest on new bond issues in order to attract buyers. That causes people to rush out of those funds, and the funds face a liquidity crisis, as we are now seeing, leaving them struggling to try to find ways to cash those people out who are fleeing the fund.I have always questioned whether the bond market bubble would crash first or the stock market bubble. Since Trump's massive changes are boosting the stock market before they even happen and breaking the bond market, we can pretty well see where the economy is going to crack.

Each time the bond market has crashed in the last few decades, a financial crisis has quickly followed:

The rise in US interest rates is also pushing up the cost for many other nations to finance their national debts because they have to compete for investors. Following a decade of exponential increases in sovereign debt and corporate debt, this rapid rise in interest rates - still in its infancy - is the most dangerous thing that could happen. It has the potential to be massively worse than a stock market crash because it can take down entire nations around the world.The question that remains is "Are we there yet?" Are we at that point where Trump will not be able to raise funds for his projects without raising the cost of interest on the national debt to a level that means certain default because we cannot raise the debt fast enough to pay for the interest increases that raising the debt causes?Who knows, but the historically rapid rise in bond interest over the past two weeks could be what "there" looks like when you finally find it - a state where the mere thought of your plans drives up your financing costs faster than you can even talk about the plans, making it impossible to carry them out - a place where debt expansion ends itself.

If that happens, this stock-market rise will be short lived as it builds in anticipation and talk of the plan but the cost of interest to fund the plan turns the plan into an unobtainable mirage before it even launches. That would cause panic in a market that just made huge changes to reposition for the benefits of that plan, and it would leave the market with nowhere to go. Unless the rate of rise in interest slows down as quickly as it began, we will be there before the president-elect takes office.So, here's an interesting little side effect: If bond interest keeps rising like it has been, the next raise in the Fed's interest target becomes irrelevant. Whether the Fed raises its interest target or not, the market is now taking over and raising interest for them - even mortgage interest.Trump's program funding needs are so massive - at a time when the nation already has more debt than it could possible afford if it had to pay historically normal, market-determined interest - that the simple thought of that financing need is a force with more power than the strings the Federal Reserve pushes.In fact, you have to ask, "If the Fed's target interest rate is still 0.25%, why are they not holding things there right now? Are they unable to do anything to slow the rise?" In the very least, Trump's plan will force the Fed into more quantitative easing because they will have to soak up all of that government debt and add it to their own balance sheet - just to keep the government debt affordable - but it appears they have already lost the ability to hold rates down or have just given up (as I said I thought they would if Trump won).It is one thing when the Fed does quantitative easing just to stimulate the economy; it's quite another when quantitative easing becomes a constant necessity just to keep the national debt affordable. At that final phase of the debt trap, you are caught in a vortex of debt that you cannot accelerate your way out of.How close is a multi-nation debt default?Before you think that the Donald is a billionaire so he knows what he is doing, bear in mind that the Donald's own great expectations for huge projects funded with debt have not always created prosperity ... even for him. In fact, those loses were so great that he still uses them to offset 100% of his tax burden (up to the last available returns), and those were simple, small-scale projects compared to rebuilding a nation. He's had several times when great expectations funded on mountains of debt collapsed.Dont' worry about it, though. The Donald has plan for the nation if they throw all of this at the wall and it doesn't stick, which he has already laid out:

"I'm the king of debt. I'm great with debt. Nobody knows debt better than me," Trump told Norah O'Donnell in an interview that aired on "CBS This Morning." "I've made a fortune by using debt, and if things don't work out I renegotiate the debt. I mean, that's a smart thing, not a stupid thing." "How do you renegotiate the debt?" O'Donnell followed up. "You go back and you say, hey guess what, the economy crashed," Trump replied. "I'm going to give you back half." ~ Politico

So, there you have it. That's where this ends if Trump's infrastructure investment experiences debt problems. He'll do the smart thing and write off the national debt. That, of course, will bust the entire financial world because nearly everyone owns massive chunks of the US debt colossus. As Clinton said on the campaign trail in response to Trump's idea of defaulting our way out this funding dilemma ...

"That could cause an economic catastrophe, and it would break 225 years of ironclad trust that the American economy has with Americans and with the rest of the world," Clinton said. "Alexander Hamilton would be rolling in his grave. You see, we pay our debts."

Ironically, Alexander already did a little rolling in his theater last week.I don't blame Trump's plan for any of this. I am merely pointing out why the plan cannot save us, and how it is already showing us we are there! Default on the national debt is going to have to happen because the national debt is already unpayable, and the global economy is sinking with so much inertia that we'll never be able to raise it fast enough to expand our way out of our debt problems because the massive amount of new debt it would take to lift the economy is going to create worse problems than what it solves.

So, I'm not concerned that Trump's plan is going to cause the default to happen; I'm just looking at what it means for timing.

The real estate mogul countered that while he's benefited from taking on debt in his business dealings, the U.S. is "sitting on a time bomb" with its national debt. President Barack Obama has grown the debt, Trump said, and Clinton "doesn't have a clue" when it comes to debt reduction.

So, maybe that is the plan - take out as much debt as you possibly can before you default. Why not? If you're going to declare bankruptcy anyway, make it worth doing by leaving yourself with assets and everyone else with empty hands. At least, we'll be in the hands (albeit small hands) of someone who knows what do with exploding debt bombs. If done right, it will rob the banksters back.Deutsche Bank has some idea of what the bottom looks like and what massive fall-out major defaults will cause because it probably has a fair idea of where its own numerous debt problems extend, and Deutsche just issued the following stark alarm:

...the global financial system remains broken and extremely fragile. Secular stagnation trends are everywhere. The world has too big a debt burden for the current growth environment.

The whole world has this problem, but there is no growth environment that will take us out of it because Trump's growth program is the strongest we've ever seen applied, and it is already digging its own debt hole deeper, faster than it can pay for. Mere talk of the plan is increasing the plan's financial costs (and the nation's current debt costs) at the greatest rate of increase the US has ever experienced.Thus, even Deutsche Bank offers a surprising statement, in spite of how bad a global default would be ...

We would feel far more comfortable if the world went through a huge creative destruction period where zombie, inefficient debt was allowed to default - thus 'right-sizing' the ratio between debt and GDP. However we've long accepted that this is highly unlikely to happen outside of perhaps a future break-up of the Euro. ~ Zero Hedge

So would I! Otherwise, we just get to stagnate the rest of our lives away and leave a world where our children will either do the same or be the ones to experience the default, neither of which will be good or right for themAllowing default to happen is, as I said at the start of the Great Recession, the only way out of the Great Recession. We are wasting time and making it more likely to be much more disorderly by putting it off. It is the one answer we have been forestalling because we want to avoid the pain. Trump's plan assures the day of reckoning for bonds gets here faster, and that is probably for the good.

As with Deutsche Bank, I say, "Bring it on because we are never going to avoid it." We might as well put the pedal to the metal and see if weÂ can power through this debt-sunken quagmire, and go out in a blaze of glory if we do not miraculously make it to the other side.It's like being up in the mountains in your four-wheel-drive while it is raining the whole time you're up there. You turn around to head back and discover you have a three-foot-deep pond of mud across the road that you almost certainly will not make it through. So, what do you do? You roll up the windows and try to power through with all you have, even though you know you'll probably never make it, because the alternative is walking twenty miles out of the mountains in cold rain anyway. You're at a point where the only remaining question is "What do you have to lose?"That's where we are, and I think that's why Bannon says, "We're going to throw it at the wall and see if it sticks." Assessing the situation realistically gives you the advantage to note this is good time to get the hip waders out of the back of the truck and put them on now, so you don't have to cover yourself with waist-deep mud after you crawl out the window in order to walk your twenty miles soaked to the skin in mud. So, prepare!Even the world's largest failing bank now recognizes that a global debt default is the best way to put this problem behind us. I have consistently said that is the only way. So, prepare.Since the world, itself, is repositioning from years of centralized globalization to national populism, the Euro breakup that Deutsche Bank seems to be hoping for could easily be as close as 2017. Brexit has begun the process. The US joined them by voting for Trexit. Italy looks about to give the Eurozone a good kick in the butt.The world's largest bank, which is experienced enough to have survived the Great Depression, finally recognizes the inevitability of something I have been saying from the very start of the Great Recession (which is why I continue to refer to the state we are in as "the Great Recession" because we never ended the problem but just kept pushing it forward): debt default is the only way out. Frankly, I think Deutsche knows that, if it defaults, the world defaults with it; so it would rather things start the other way around. They'd feel "more comfortable" with that because then they wouldn't get all the blame when the world crumbles. It shows how little hope they have for their own recovery, apart from a global default.Trumped-up hope is buying the stock market a temporary reprieve from crashing, but that only means the bond market will be the first tsunami to arrive on shore. So, while Trump's plans may delay the Epocalypse I have written about because the scale of his planned change is so huge, it is already showing that a debt default is likely by the rapid increase in interest rates.The world's biggest failing bank sees no way out for the entire planet but a global catastrophe and now advocates "the sooner the better; let's get it behind us."Even Trump has acknowledged from the beginning the strong possibility that it all ends in default, but he says he's the best one to guide us through that, and maybe he is. The unfortunate part is, as he said during his campaign, that many liberal fools will blame him for a collapse that was already inevitable. People who read sites like this, however, will know when such a thing is said that it isn't true. This calamity could be seen coming from miles away by anyone not steeped in economic denial.

As Donald Trump talks of tariffs, Argentina and Brazil show the costs that consumers and taxpayers pay for barriers on trade

By Taos Turner and Paul Kiernan

Factory workers in Argentina Photo: Taos Turner/The Wall Street JournalAs U.S. President-elect Donald Trump contemplates tariffs and other limits on trade, he might consider the results of such protectionist measures in two economies on the other end of the hemisphere, in Argentina and Brazil.For decades, South America’s two largest economies have tried to shield their workers from global trade, largely through high tariffs and regulations that promote domestic production over imports. The World Bank ranks Argentina and Brazil among the world’s most closed big economies. In Brazil, locally made products are enshrined in the constitution. Gadget-loving Argentines often use the black market or go to Miami to buy iPhones, which were barred for years because Apple wouldn’t produce them in Argentina.These protectionist policies have created tens of thousands of well-paid factory jobs and may have helped avoid factory layoffs like those that rattled Midwestern U.S. states like Michigan. But they have come at a huge cost to consumers, who now pay higher prices, and to taxpayers, who underwrite the subsidies. Taken together, these measures essentially transfer wealth from society at large to a smaller group of workers.

In Tierra del Fuego at Argentina’s southern tip, where cruise ships sell sightseeing tours of icebergs and penguins, one can see the results of an experiment to create a “Made in Argentina” electronics manufacturing hub. To help it thrive, the Argentine government slapped a tariff of up to 35% on imported electronics. Now, 14,000 workers in 55 factories in this grimy industrial town and the nearby tourist paradise of Ushuaia churn out products including phones, TVs and air conditioners. Most of the components are Asian-made, imported duty free and assembled by Argentine workers, with a few local components like Argentine-made screws thrown in. Chinese, Japanese and Korean executives have moved to Tierra del Fuego to oversee the production of everything from Samsung phones to Sony TVs, officials at several factories said.

But the combination of government regulations and market forces has meant some striking eccentricities. Argentina opted to build an industrial hub 1,800 miles from the country’s biggest consumer market, Buenos Aires. At Newsan, Argentina’s leading electronics firm, workers disassemble partially built air-conditioning units, imported from Asia, before rebuilding them with mostly imported but locally manufactured contents. The air conditioners and other products are then shipped to Buenos Aires—nearly three times as far from here as Antarctica—to be sold for two to three times the market price of other countries. The cost to Argentina’s taxpayers of these jobs is steep: up to $72,000 per factory worker a year, including tax breaks and other incentives, officials say. The largess was needed, said former President Cristina Kirchner, because “without manufacturing, we’d have no country and no future.”But for ordinary Argentines, the products’ price tag can be hefty. An unlocked Samsung J7 smartphone sells for $240 in the U.S. but costs nearly $500 in Buenos Aires.“The irony is that people who live here don’t buy the products made here,” said Cintia Davalos, 27, who works in a Tierra del Fuego five-and-dime. She explained that residents will drive seven hours to free-market Chile to buy everything from auto parts to clothing to TVs.Mr. Trump, who blames trade deals for sending American jobs overseas, has promised to pull out of the 12-country Trans-Pacific Partnership. He has suggested special tariffs or other barriers to reduce the U.S. trade deficit with Mexico. And he has vowed to slap a 45% tariff on Chinese imports if Beijing doesn’t alter practices that Mr. Trump calls unfair.But most economists say that protectionism—whether the kind Mr. Trump has promised or the version Argentina has tried—is deeply damaging. Indeed, Argentine President Mauricio Macri is trying to open up the economy by cutting subsidies and tariffs. “Taking a protectionist turn would be extraordinarily disruptive, not just for our trading partners but for the United States,” said Eric Farnsworth, a former U.S. diplomat who is now vice president of the Council of the Americas. He and other advocates of free trade often highlight the self-inflicted wounds that protectionism has caused economies in Latin America. Here, import substitution gave Mexicans the notoriously unreliable Zonda TV back in the 1970s and left Brazil producing the 1950s-era Volkswagen Type 2, or hippie bus, until 2013. Most countries have long abandoned that model. Mexico, for instance, has become a global leader in free trade, signing deals with 44 countries. Since 2010, Latin America’s open economies—tied together in the Pacific Alliance, which groups Mexico, Colombia, Peru and Chile—have grown by an accumulated 29.7%.Meanwhile, members of Mercosur, the protectionist trade bloc led by Argentina and Brazil, grew 19.4% and had less investment and much higher inflation, according to a study by Santander Rio. In Brazil, Latin America’s largest economy, exports accounted for just 13% of GDP last year—a fraction of the ratio in trade-focused economies such as Mexico (33%) or Germany (50%). In Argentina, exports are 11% of GDP.Critics warn that Brazil’s long history of protectionism bred complacency in its manufacturers, leaving them unprepared and vulnerable.Consider Brazil’s auto industry, until recently one of the world’s 10 largest. Shielded for decades by high tariffs, it has devolved into a peddler of rinky-dink hatchbacks with one-liter engines that barely sell outside of the Mercosur bloc. After nearly three years of deep recession, with few export markets to support the industry, output has fallen some 45%. And for Brazilian consumers, cars are far pricier: A new Volkswagen Gol Comfortline lists in Brazil at $15,231—nearly twice as much as in Mexico, which has low tariffs and an efficient car industry.The effects of protectionism go beyond cars. After big offshore oil finds a decade ago, Brazil’s government set “Made in Brazil” mandates for drilling vessels, refineries and shipyards. That drove up costs and fostered corruption. Major construction firms like Odebrecht and Andrade Gutierrez formed a cartel to drive up prices for the state-run oil company Petróleo Brasileiro SA, or Petrobras, according to convictions of executives and politicians in Brazil’s courts. Since 2014, Petrobras has taken some $37 billion in charges due to corruption, overpriced assets and falling oil prices. Still, workers say the system in Argentina has created thousands of dignified, middle-class jobs. “I was able to buy a new car and build my own house thanks to this job,” said Darío López, 36, a quality-control supervisor at Mirgor, which makes air conditioners, stereos and GPS units for car makers including Toyota.Rubén Cherñajovsky, president of Newsan, which operates six plants in Tierra del Fuego, says Argentine companies can’t compete with labor costs at Asian firms like Foxconn Technology Group, which makes the iPhone. “If you opened imports in the extreme, we’d have a country with 35% or 40% unemployment,” he said.But Nicolas Dujovne, a former Argentine central bank director, noted that Argentina—a big, resource-rich country with a relatively well-educated workforce—still hasn’t become an industrial country. “The losers from populism can be found everywhere,” he said. “They are the millions of jobs and hundreds of thousands of companies that were not created because of very disorderly macroeconomic policies.”

If you know the other and know yourself, you need not fear the result of a hundred battles.

Sun Tzu

We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.